The remarkable decision by ASIC yesterday to ban all short-selling for 30 days caused a delay in the opening of trade this morning as investors scrambled to work out what it all meant.
It has also provided enormously divergent commentary as to whether the decision is right and mass-confusion on the consequences.
Alan Kohler this morning wrote on Business Spectator about “the likely ruin of the hedge fund industry” which is way over the top when you consider that hedge funds are simply fund managers. Some will win and some will lose, as Tony Boyd calmly explained in another piece on Business Spectator.
The great irony of the situation is that hedge funds as a whole are a lot less leveraged and employed far more effective risk-management practices than the global banks which trade with them. Hugely geared independent investment banks will probably disappear but the funds management industry will soldier on, although those relying on shorting might have to adapt.
The events of the weekend over-ran last week’s controversy about The Australian’s involvement in the attacks on Macquarie Group and it was good to see how the paper handled the issue on Saturday and Monday.
The reporter involved, Adele Ferguson, who rightly has a lot of admirers for her excellent work over the years, wasn’t pulled from covering Macquarie but her colleague John Durie appeared to give Adele an indirect backhander on Saturday when he wrote:
Fundamental analysis no longer drives market prices, which are now set by herd behaviour sparked by the latest rumour or wild unchecked distorted reports.
The Australian also gave former Macquarie executive John Green a big run with this opinion piece today which included the following;
Last week, Macquarie Group, where I happily used to work until I retired two years ago, and where I and my family still confidently have money on deposit and own shares, was rocked by wilder false rumours than ever before.
It was Charlie Aitken from Southern Cross Equities who first explained the rort, but Green described it as follows:
Stories are circulating that some investors decided that last week was the perfect time to trash Macquarie just so they could gouge a sweet few billion dollars out of other people’s misery. If the stories are correct, this strategy involved them manipulating the illiquid credit default swap market for Macquarie’s debt securities to falsely create the appearance that Macquarie’s credit spread was severely widening, which in turn would wrongly fuel the rumour mill about Macquarie’s credit-worthiness.
Green goes on to suggest the corporate plod immediately freeze the ill-gotten gains made by the despicable market rorters, and arrest a few of them. But to do that, they need to act immediately or the money will all be whisked out of their brokers’ accounts.
This, of course, would also require ASIC to chat with The Australian because it was the media outlet giving prominent and dramatic coverage to the apparent blowout in Macquarie’s credit risk.
These issues are never black and white because The Australian had every right to aggressively cover Macquarie’s plunging share price and the credit rating agencies did indeed downgrade the credit outlook for the Millionaires Factory.
The Weekend Australian rightly gave prominent coverage to Macquarie’s huge surge on Saturday and will no doubt do the same again tomorrow if the expected follow-up rise sustains itself throughout this crazy trading day.
* Listen to Friday afternoon’s discussion about Macquarie and The Australian on 4BC with Mike Smith.
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